In the All About You feature, you learned that there are on-line investment services that provide advice to investors. These services offer stock quotes, company

In the €œAll About You€ feature, you learned that there are on-line investment services that provide advice to investors. These services offer stock quotes, company research reports, personal finance information, news, on-line seminars, and message boards. However, it is also important that as an investor you differentiate good information from bad information. Reading the financial statements and preparing a ratio analysis is one step in evaluating an investment. You have recently inherited $10,000 cash and you are considering investing in Canadian Tire Corporation, Limited€™s shares.

You obtain a copy of Canadian Tire€™s 2012 annual report and see the following information (in $ millions, except per share amounts) in the financial statements.

Instructions

(a) Calculate the following ratios for the 2012 fiscal year. Compare these to the 2011 ratios shown in the Ratio Analysis section of the chapter for Canadian Tire and reproduced in parentheses after each ratio below. For each ratio, has it improved or deteriorated from 2011?

1. Current ratio (1.7:1)

2. Inventory turnover (6.2 times)

3. Debt to total assets (64.3%)

4. Interest coverage (5.1 times)

5. Gross profit margin (29.5%)

6. Profit margin (4.5%)

7. Return on assets (4.0%)

8. Return on equity (11.1%)

9. Price-earnings ratio (12.7 times)

10. Payout ratio (19.6%)

(b) Based on your brief analysis of Canadian Tire€™s ratios, do you think buying Canadian Tire€™s shares is a good investment for you? Explain.

(c) If you are investing in the stock market, will you rely solely on your analysis of the financial statements? The history of Canadian Tire€™s stock price? Or do you think you might rely on both your financial statement analysis and the history of the stock price? Explain.

(d) In the €œAll About You€ feature, we learned that critics of message boards on investment services€™ sites say that message boards can intensify the rumour mill. Do you think that you should ignore message boards when making investment decisions? Explain.

Current assets Current liabilities Cost of goods sold Total liabilities Total assets Profit $ 7,748.6 4,624.1 7,545.3 8,417.8 144.3 Interest expense Income tax expense Gross profit Net sales 178.0 3,497.9 11,427.2 Cash Dividends Earnings per share 13,181.4 499.2 101.7 6.13